Reply to: The continuing nonsense of "Take Home Pay"

[m0n1k3r]

Apart from the obvious (accountant and insurance, etc), it is income.

It isn't. A few might be benefits in kind, but that is not income.

Or do you perhaps work for the HMRC?

[fidot]

I think who paid initially does not matter. Just a nuance.

Agreed. The key point is whether the beneficiary is the company or the individual.

[FK1]

The first kind of income protection insurance can be purchased for the individual by the company.
...
The second kind of income protection insurance can be purchased for the company by the company.
...
If his life insurance is a relevant life plan he has an argument there. It's effectively tax-free income, as is the mobile phone. These are things you would probably buy for yourself if they weren't provided, and are often not necessary for the business. There are a few things HMG allows employers to do for employees without grubbing around for every pence of tax they can seize.

The same good balanced thoughts there
https://www.drewberryinsurance.co.uk...siness-expense

Be careful, your benefit may be taxed
If you wish to put your income protection premiums through as a trading expense it is usually wise to take out an executive income protection plan rather than a personal plan.

Just may be "purchased ... by the company" is not such strict. It could be paid by a personal account and then reimbursed. Of course that adds some mess but still legitimate.

For example, I pay Life Insurance and my business mobile broadband (exclusive use etc) from my personal account. Not on purpose but historically and that even could be useful as it is independent from Ltd Closure and could be used in a new Ltd. Given less hassle with P11D now that even could be a preferable option.

P.S. Similar when Personal Credit card is used for some reasons when no Commercial credit card.
I used Commercial credit card for years in old Ltd and now I do not want to use it ever any more as Commercial credit card bank transactions is a nightmare for bookkeeping.

I think who paid initially does not matter. Just a nuance.

[WordIsBond]

Oh man, OK this is my last comment then!

If the company didn't pay for it, I'd be paying for it out of my personal bank account that has already been taxed.

My point has nothing to do with any claims.

Ok, I'm going to respond to this, not because I think you are going to see it any differently than you do, but because other people are reading and I don't want you to confuse somebody else.

The first kind of income protection insurance can be purchased for the individual by the company. It counts as a business expense. It is also a benefit in kind in this case, which means you pay income tax on the premiums, even though you haven't received it. In this case, our friend's argument that this is "income" is pretty reasonable, and HMRC would agree with him. The company is buying something for the person that he might well buy for himself out of after-tax funds, and it works out pretty close to the same thing as if he did.

The second kind of income protection insurance can be purchased for the company by the company. If you become ill or whatever, it pays funds to the company. This is a legitimate business expense, like any other business insurance. It is insuring the business against loss of revenue. This is the kind of insurance that he is apparently discussing.

He said above that if the company didn't pay for it, he would be paying for it out of his personal account that has already been taxed. I'm sorry, but that simply isn't true. If the insurance is not a benefit in kind, then it is the second kind of insurance, not the first kind, while the kind he would buy for himself is the first kind.

In saying, "My point has nothing to do with claims" it shows that he doesn't actually understand the difference between the two kinds of insurance, and perhaps even a fundamental misunderstanding of the distinction between him and his limited company. One insurance insures his income, the other insures his company's income. I think, based on prior posts, that he DOES understand the difference between his income and his company's income, but for avoidance of any doubt, these are two different things. His company's income is taxed as profit at corporate tax rates but is not his until it is extracted as salary or dividend, at which point it becomes subject to income tax.

Insuring the company's income gains him nothing unless/until he extracts that income and pays tax on it. The insurance premium is not income to him because it is not buying anything that gains him personally anything. It is buying something for the company. That something could benefit the company later, and if it does, it will eventually result in income for him which will be taxed. But that insurance is not buying him anything.

It matters because income protection insurance is expensive and between that and the accountancy fees is probably more than 2/3 of his monthly expenses. It shoots significant holes in the argument that expenses are income when most of your expenses aren't.

If his life insurance is a relevant life plan he has an argument there. It's effectively tax-free income, as is the mobile phone. These are things you would probably buy for yourself if they weren't provided, and are often not necessary for the business. There are a few things HMG allows employers to do for employees without grubbing around for every pence of tax they can seize.

[Ebenezer]

I have an alternative take on this which might also be of use to new contractors:

• If you have lunch at Hawksmoor every day and you're a permanent employee, you will be paying for this out of your salary.
  
• If you have lunch at Hawksmoor every day and you're a contractor, you will be paying for this out of your pension.

[SueEllen]

Oh man, OK this is my last comment then!

If the company didn't pay for it, I'd be paying for it out of my personal bank account that has already been taxed.

My point has nothing to do with any claims.



No, I am not. I tried to make a high level point that not all expenses should be treated as costs, and that many of them are a way of paying for things through the company that you would otherwise be paying for out of your personal account.

Your replies (and others) dispute this by giving very specific examples which are fine but not necessarily the ordinary state of affairs for many people. Such as permies getting their lunches paid for them. That may be so, but it is not the standard experiment for the majority of permies, and does not constitute proof that I am talking nonsense.




This is a great example of what I mean. This comment came after I said I don't want to be part of this bow destructive (rather than helpful) thread. You have made a few assertions about me and my experience which are designed to be derogatory. You may not have meant to, but your chosen words say it all. And to be clear, the assertions are all wrong.

Honestly, this thread should be closed now. I can't see how any further posts will add anything positive to this conversation. But hey ho. Feel free to quote any parts of this post in your next reply. I am done with this conversation. You'll find me in other threads attempting to be helpful, maybe a bit sarcastic as I try to live up to NLUKs standards.

Running away as other posters are simply pointing out in detail what Malvolio said a few posts ago that if you are making a profit out of expenses it is tax evasion?

For any new posters expenses are not income.

Yes you now probably hold a higher position in a company than you did before hence you have more expenses, but you only have those expenses due to that position and the nature of your work. Be aware that some of those expenses you may not be able to claim continuously such as travel and meals as everything depends on your individual circumstances. This is why those calculators are wrong and probably worthless.

Btw if you pay insurance like income protection yourself, out of your personal bank account, it is all your money. If it is paid from the company you are director of, then it goes to meeting the company's running costs before any income is paid to that director.

[l35kee]

OK. So this income protection is insurance that your company owns and the proceeds go to the company if there is a claim. For you to get the money out of the company, it will be income to you.

So the insurance premiums are not income to you. They protect your company, not you. Will you benefit? Yes, possibly. But if you do, THAT is when you will have income.

Oh man, OK this is my last comment then!

If the company didn't pay for it, I'd be paying for it out of my personal bank account that has already been taxed.

My point has nothing to do with any claims.

You aren't being trolled.

You have been taken to task because you are talking nonsense.

No, I am not. I tried to make a high level point that not all expenses should be treated as costs, and that many of them are a way of paying for things through the company that you would otherwise be paying for out of your personal account.

Your replies (and others) dispute this by giving very specific examples which are fine but not necessarily the ordinary state of affairs for many people. Such as permies getting their lunches paid for them. That may be so, but it is not the standard experiment for the majority of permies, and does not constitute proof that I am talking nonsense.

You may have poor permanent employers, been at a lower position when permanent or only worked in one location but others haven't, know people who haven't and also know people who have and do work in larger companies finance departments.

This is a great example of what I mean. This comment came after I said I don't want to be part of this bow destructive (rather than helpful) thread. You have made a few assertions about me and my experience which are designed to be derogatory. You may not have meant to, but your chosen words say it all. And to be clear, the assertions are all wrong.

Honestly, this thread should be closed now. I can't see how any further posts will add anything positive to this conversation. But hey ho. Feel free to quote any parts of this post in your next reply. I am done with this conversation. You'll find me in other threads attempting to be helpful, maybe a bit sarcastic as I try to live up to NLUKs standards.

[WordIsBond]

You guessed wrong.

OK. So this income protection is insurance that your company owns and the proceeds go to the company if there is a claim. For you to get the money out of the company, it will be income to you.

So the insurance premiums are not income to you. They protect your company, not you. Will you benefit? Yes, possibly. But if you do, THAT is when you will have income.

[SueEllen]

Oh I'm aware of that yes. Typically a small sum which the employee can pay more to increase the coverage of, but it of course differs depending on the employer.

In any case my comment was in regards to my income protection being bik, it isn't.



That was a mistake in my previous comment when listing expenses, thanks for highlighting it. Obviously being trolled now so I'll let this be my last comment in this thread.

Hopefully the point was clear to future readers though, especially those new to contracting who don't quite understand expenses.

You aren't being trolled.

You have been taken to task because you are talking nonsense.

You may have poor permanent employers, been at a lower position when permanent or only worked in one location but others haven't, know people who haven't and also know people who have and do work in larger companies finance departments.

Btw In regards to lunch there are some jobs where employers do pay for the lunch of employees particularly senior ones. However these people tend to do 12+ hour days almost daily so get a couple of meals regularly paid by their employer.

[l35kee]

You seem unaware that larger employers frequently insure the life of employees, insure them against sickness and a few other things. It doesn't mean the individual employee gets the money but it helps the business to meet its costs if these things happen.

Oh I'm aware of that yes. Typically a small sum which the employee can pay more to increase the coverage of, but it of course differs depending on the employer.

In any case my comment was in regards to my income protection being bik, it isn't.

Btw when did a permanent employee need an accountant to do their Corporation tax return? Or run their payroll?

That was a mistake in my previous comment when listing expenses, thanks for highlighting it. Obviously being trolled now so I'll let this be my last comment in this thread.

Hopefully the point was clear to future readers though, especially those new to contracting who don't quite understand expenses.

[SueEllen]

Btw when did a permanent employee need an accountant to do their Corporation tax return? Or run their payroll?

[SueEllen]

You guessed wrong.

You seem unaware that larger employers frequently insure the life of employees, insure them against sickness and a few other things. It doesn't mean the individual employee gets the money but it helps the business to meet its costs if these things happen.

[FK1]

£300 in a week could be accommodation costs that paid to a contractor on not "all inclusive" rate.
That should be included to invoices. Then that is Sales.

If a contractor wants and could (have receipts) it could become later as an Expense.

If it is received from a client directly to a personal bank account then it is Income.

That could look like reimbursed expenses but where it is from Client it is Sales or Income.

If it is between Ltd and its Director then it could not be Income where it is reimbursed expenses.

What is interesting
As of 6th April 2016, employers are no longer required to report reimbursed expenses on forms P11D.

I think that all about is expenses reimbursed or expenses incurred. But £300 in a week for a hotel is easy.

They are based on current tax legislation and specific regulations. HMRC has to be satisfied that the expense is allowable for tax purposes; otherwise the reimbursement is treated as additional taxable income

Hope my post is relevant

[Ebenezer]

I think you're being trolled.

FWIW I have had at least one permanent job where all of the below were employer provided, and several where most of them were. This was in the "good old days" when the BIK rules weren't what they are today. In fact, why the hell am I contracting??

Oh right lol, can't account for that but my phone, life insurance, income protection, accountant, milage all adds up. About £200 a week.

Those are the exceptions though. Come on, you know I don't mean those sort of travel costs obviously. Mileage, lunch, childcare, mobile phone, etc, etc, etc. It's money you get without paying tax that you would probably (WITH OBVIOUS EXCEPTIONS) would be paying as a permie with your post-tax income.

Did I mention obvious exceptions yet?

[l35kee]

So you think accountancy fees are "income"?

You think mileage, getting reimbursed for travel you do for work, is "income"?

I'm guessing "income protection" is a BIK and so does count as income?

You guessed wrong.